Final Assessment – Summer II – 2021 Written assignment (essay) Activity brief – 4 mini essays BCO 222: Business Finance II Online campus Professor: Miguel Corte-Real. Email: [email protected]

Description Please read the 4 cases below, and answer the corresponding questions.

Format This activity must meet the following formatting requirements:

• Font size 12 • Double-spaced • Harvard Referencing System • pdf only

Goal(s) The student should be able to demonstrate the learning of the above outcomes making the link between the material covered during the seminars and the research requested to answer each of the questions.

Due date Date: WEEK 8, September 20th, 2021, 14:00CEST

Weight towards final grade

This activity has a weight of 50% towards the final grade.

Learning outcomes

The Student should be able to demonstrate the knowledge gathered during the seminars in reference to the below topics: Short term financial planning

• Working capital management

• Estimating the cost of short-term credit

Assessment criteria

Please refer to: Rubric written assignment provided below.

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CASE 1 (25 points) 1.1. Listed below are five transactions that Joma Sports might make. Indicate how each transaction would affect (a) cash and (b) working capital. The transactions are:

I. Pay out an extra $10 million cash dividend. II. Receive $2,500 from a customer who pays a bill resulting from a previous sale. III. Pay $50,000 previously owed to one of its suppliers. IV. Borrow $10 million long term and invest the proceeds in inventory. V. Borrow $10 million short term and invest the proceeds in inventory.

1.2. State how each of the following events would impact the Joma’s Sports balance sheet. State whether each change is a source or use of cash.

a. An automobile manufacturer increases production in response to a forecasted increase in demand. Unfortunately, the demand does not increase. b. Competition forces the firm to give customers more time to pay for their purchases. c. Rising commodity prices increase the value of raw material inventories by 20%. d. The firm sells a parcel of land for $100,000. The land was purchased five years earlier for $200,000. e. The firm repurchases its own common stock.

CASE 2 (25 points)

1. What are the trade-offs involved in the decision of how much inventory the firm should carry? In what way does the cash manager face a similar trade-off?

2. Company X sells on a 1/30, net 60 basis. Customer Y buys goods invoiced at $1,000.

a. How much can Y deduct from the bill if Y pays on day 30? b. What is the effective annual rate of interest if Y pays on the due date rather than on day 30?

3. How would you expect payment terms to change if:

a. The goods are perishable. b. The goods are not rapidly resold. c. The goods are sold to high-risk firms.

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4. The lag between the purchase date and the date on which payment is due is known as the terms lag. The lag between the due date and the date on which the buyer actually pays is the due lag, and the lag between the purchase and actual payment dates is the pay lag. Thus, Pay lag = terms l